Report: Firm Leaders Showing More Economic Confidence in 2017

Most law firm leaders said they expect demand for their services to grow in 2017, but at a slow pace, according to a survey of 153 firms conducted in October and released Monday by Citi Private Bank's law firm group.

By Nell Gluckman|January 10, 2017 at 03:40 PM|Originally published on Law.com

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Most law firm leaders said they expect demand for their services to grow in 2017, but at a slow pace, according to a survey of 153 firms conducted in October and released Monday by Citi Private Bank’s law firm group.

The firm leaders expect revenue to also make single-digit gains, a reflection of their modest confidence in the U.S. economy.

“It’s challenging times out there, but folks are confident about the industry,” said David Altuna, a senior vice president at Citi Private Bank. Of the 153 firms surveyed, he noted 66 are in the Am Law 100.

About a third of the firm leaders said they project demand for their services to grow less than 2 percent. Another 27 percent said demand will grow two to five percent and 23 percent said it would remain unchanged.

Since demand is not growing dramatically, firms recognize that “their success is going to come at the expense of another firm,” Altuna said. Still, well over half the firm leaders who responded to the Citi survey expect demand to grow at their own firms.

All but 15 percent of firm leaders surveyed said they expect revenue to rise in 2017, though almost all said it would grow less than 5 percent at their firms. Those figures show an improvement in confidence in revenue compared to six months ago, when the Citi survey was last released.

Firm leaders expressed slightly less confidence in the growth of their net income, which suggests that they expect expenses to rise, Altuna said. That growth in expenses likely comes from the rise in associate pay, but is also a result of the increasing cost of infrastructure and cybersecurity protection.

Altuna said the metric that surprised him the most was law firm leaders’ growing confidence in realization rates, compared to six months ago. While almost half of those surveyed said realization rates will be unchanged, about a third said that realization rates, which refers to the amount of money firms actually bring in the door after giving clients’ discounts, will improve in 2017.

“It’s not that the clients aren’t asking for the discounts anymore,” Altuna said. “Firms decided that they have to manage this internally.”

Some firms are hiring fulltime project managers and pricing specialists, who help negotiate fees with clients and make sure matters are staffed efficiently. Others are training partners in these areas, Altuna said.

In perhaps one of the best indications of confidence in the market, most law firm leaders said they expect to grow their lawyer head counts in 2017. Despite their higher base pay, associate head counts are expected to grow the most. Two thirds of firm leaders said they’d grow their associate ranks, while half said they’d grow their overall partnership and 42 percent said they would grow the nonequity partner tier.

In general, the firm leaders expressed modest confidence in the U.S. economy, but somewhat worse confidence in the global economy. The American Lawyer reported last month on another report by Citi and Hildebrandt Consulting examining the prospects for law firm growth in 2017.

Contact Nell Gluckman at ngluckman@alm.com and on Twitter: @NellGluckman

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